Economic adjustment in the Baltic Countries
AbstractEstonia, Latvia and Lithuania stand out for their rapid economic adjustment after the outbreak of the global financial crisis. The reduction of imbalances and vulnerabilities in the Baltic countries has been much faster than that in the euro area countries most affected by the debt crisis. Our analysis seeks to explain these developments by addressing the following questions. First, what explains the recent cyclical pattern of the Baltic economies? Second, what are the similarities and differences between the economic adjustment in the Baltics and that in the euro area countries most affected by the recent debt crisis? And, finally, how successful has the strategy of adjustment been in the Baltic countries? We argue that the primary driving force of the cyclical developments in the Baltic economies has been the change in capital flows. A comparison of the economic adjustment in the Baltic countries with that in the three euro area countries strongly affected by the debt crisis – Ireland, Greece and Portugal – suggests that the main determinant of the speed of adjustment has been the ability of the countries to mitigate the impact of the sudden stop in private sector capital flows. Looking at the pros and cons of rapid and gradual adjustment, we conclude that in the case of the Baltic countries, the strategy of rapid adjustment has overall been a successful response to a very difficult situation
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Bibliographic InfoPaper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number wp2013-1.
Date of creation: 23 Apr 2013
Date of revision:
Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G01 - Financial Economics - - General - - - Financial Crises
- P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-05 (All new papers)
- NEP-CIS-2013-05-05 (Confederation of Independent States)
- NEP-EEC-2013-05-05 (European Economics)
- NEP-MAC-2013-05-05 (Macroeconomics)
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